Our team performed an audit of a property that had been converted to office use and retrofitted as an occupancy inducement. However, during the audit, it was determined that much of the work that was to be completed regarding the HVAC system modification was not finished in advance of the client’s lease commencement, but rather postponed and passed through to the client as part of the operating expenses of the building. Additionally, the landlord was categorizing subsequent replacements of major HVAC components as expenses with the justification that the incurred “cost savings expenditures” would increase the operating efficiency and ultimately decrease the overall operating costs of the building. The cost savings calculations provided by the landlord were reviewed and scrutinized and it was determined that the only reason the theoretical cost savings delta existed was because the correct work was not completed initially and thus the system was operating below required standards. Our position was further supported by a synopsis report from the global vendor responsible for the initial and additional work which confirmed the audit positions.

We also detailed that the landlord calculated the management fee incorrectly by including non-qualifying revenue related to termination fees, HVAC reimbursements, fitness center charges and cafeteria rent. These alternate revenue streams were noted and removed from the calculation methodology. Further, adjustments were made related to the inclusion of sale related bonuses and applicable taxes which coincided with the change of ownership of the building. Through the audit, our team also removed corporate legal and professional fees as well as miscellaneous items such as improper accrual charges for water and HVAC reimbursements due to the change in ownership. Such final accruals were accounted for in the general ledger of the prior ownership, but were not reversed in the general ledger of the new ownership when the actual costs for the accrual periods were recorded.

Lastly, our team reversed duplicate charges related to the actual costs of providing the overtime HVAC services (engineer labor, electricity and additional repairs due to wear and tear) which had already been included in the operating expenses for the building.